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About Convex Finance (CVX)
CVX is the native governance token of Convex Finance, a yield optimization protocol. Convex is built upon Curve Finance, a stablecoin exchange protocol and in itself a quickly flourishing ecosystem within the realm of decentralized finance (DeFi), particularly with respect to yield farmers maximizing their staking rewards.
CVX is used to do just that – reward a captive audience of hands-tied holders of ring-fenced Curve assets, or CRVs, which interconnect with related CRV staking rewards tokens that accrue over time.
Convex launched in May 2021 to little fanfare and merely $60 million in total value locked (TVL). But the platform has since seen its TVL surge to more than $20 billion as of early January 2022, according to data from DeFi Llama.
Such fast, enormous growth owes to a bumper crop of yield farmers seeking optimization and automation as they squeeze as much yield out of their crypto staking and swapping activities.
CoinDesk has dubbed Convex a “yield-boosting application.” Hackernoon refers to it as a “yield aggregator,” akin to Yearn Finance.
In essence, it’s a platform for CRV holders to goose their CRV rewards, like frequent flyers being able to earn interest loaning out their unused miles to other passengers, and still getting to use them (probably) later on (provided, in this metaphor, a series of connecting flights arrive on schedule).
The growth of the stablecoin sector was a compelling story in 2021 and remains a growing trend. Particularly impactful as an integral part of the expanding DeFi ecosystem, volatility-mitigating stablecoins’ total market capitalization exceeds $160 billion, according to CoinMarketCap.
Ethereum-based, Curve is not just a stablecoin exchange but also a key underpinning of a series of related projects that rely on its math wizardry; Curve’s TVL is estimated at $23 billion, making it the largest DeFi protocol. The fact that Convex, next of kin of Curve, could make up so much TVL ground on its older sibling, and do it so quickly, is testament to the onward and upward mindset of developers innovating in this space.
How does it all work? Liquidity providers on Curve are rewarded with CRV tokens. Ponder that. Why isn’t CRV enough, why the need for CVX?
Curve users, as it turns out, are incentivized to lock up their CRV stash for relatively long periods. This creates opportunity costs. And it has created an opportunity for a yield-boosting application, CVX, to appeal to CRV holders who may be disinclined to tolerate these opportunity costs.
As mentioned above, time-boxed CRVs (subjected to lock-ups for as long as four years) can be converted into a rewards-enabling token, voting-escrowed CRV (veCRV). Of course, one could simply hold on to their veCRVs. That would give Curve users decision-making participation rights, and to earn higher fees and to receive airdrops. Battle for control of these benefits has led to a heated competition among Convex and some other veCRV amassers, such as Yearn Finance (YFI) and Abracadabra (SPELL), engaging in what some analysts have described as the “Curve Wars.”
CRV can either be sold or staked into veCRV. Because the staked tokens are subjected to lock-up, ostensibly with users wanting to stow their CRV away for as long as possible in order to get more veCRV (and thus more rewards), this mechanism carries a not-ideal repercussion, one for which so-called “DeFi 2.0” projects like Convex have tried to solve: illiquidity.
Flipping the opportunity costs for CRV users, Convex aggregates user assets to snatch up CRV tokens and, converting them into veCRVs, give the Curve ecosystem a means of maximizing their rewards, sans lengthy lock-up periods.
The competition to attract CRV token holders intensified in the latter part of 2021 and into 2022, maybe not an all-out war but, as CoinDesk noted, something of a land grab, as rivals seek to control the supply of veCRV so as to control how rewards are allocated across Curve’s stablecoin liquidity pools.
The so-called Curve Wars, Hackernoon said, can be described as "the race between various protocols that are continuously trying to ensure that their preferred pools are offering the highest $CRV rewards."
Delphi’s analysts added: “Major stablecoin projects have realized this weekly vote allocation is critical to keeping their Curve liquidity high. (Losing that vote means LPs’ yields drop, and capital may move elsewhere.) Now, a so-called ‘war’ has ensued, with various protocols openly bribing votes and rewarding veCRV holders with their native tokens.”
Convex is currently the single largest owner of veCRV, with 47% of the total supply as of early January, according to CoinDesk. The protocol has been aggressively wooing staked CRV, offering an annual percentage yield (APY) of 48%.
The current price of CVX
You could say it fluctuates. As of the end of the first week of January 2022, CVX was trading at $40, having declined roughly 30% from its all-time high of $60 reached only one week earlier on New Year's Day of 2022. During the better part of the month of December 2021, CVX surged, rising, over one 30-day stretch, nearly 100%.
As of early December 2021, CVX sunk to as low as $19, before rallying, indeed, tripling, on route to establishing a record high ($60) on Dec. 27, 2001.
Over the same stretch of weeks, its 24-hour trading volume spiked, going from an average of $20 million to more than $163 million.
It was only months ago, in the summer of 2001, that CVX dropped to its lowest-ever level, $1.90. It has since gained more than 2,000%.
How the price of CVX is determined
CVX has a maximum supply of 100 million and a circulating supply of 45 million, according to CoinGecko.
The trend, over time, is that less CVX enters circulation for every CRV that Convex accrues and Convex continues to accrue, Yunt Capital said in a bull case scenario article on Medium. CVX thus remains on a path of securing the vast majority of veCRV voting power, therefore increasing the power per CVX. That, in turn, is sparking demand for CVX, an asset which, as mentioned, has a limited supply.
"DeFi protocols purchase CVX to be able to be competitive for gauge weights and lock it, taking the CVX out of circulation," Yunt Capital said. "The price per CVX rises as a result of the reducing supply and being the optimal way to accrue voting power."
Convex is symbiotic to Curve, only magnified, so as CRV goes, so goes CVX.
The network is worth over $2.2 billion by market capitalization, making it the 77th-largest coin ranked by CoinGecko.
What the bulls are saying about Convex Finance (CVX)
- One reason for the strength of Convex in December has been the addition of new assets, including new opportunities to provide liquidity in support of the platform,” Cointelegraph said. “Recently, Convex announced that it would be expanding beyond its focus on Curve Finance by adding support for the up-and-coming Frax Finance stablecoin ecosystem.”
- Over the next 12 months, CVX could rise from $40 to more than $100, according to a quantitative forecast from Wallet Investor.
- The near-term technicals have also signaled a “bullish force,” Coin News said.
What the bears are saying about Convex Finance (CVX)
- "The coin might have strong fundamentals but we don’t think that it would a profitable asset in short term," said PricePrediction.
- CVX will fall from $40 to as low as $26 as of December of 2022, Cryptoknowmics said.
- A technicals-based analysis for CVX rated it as a sell, said Coin Data Flow.
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